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Are Voters Rational? Evidence from Gubernatorial Elections

University of Michigan at Ann Arbor - Department of Economics; The Ford School of Public Policy, University of Michigan; The Brookings Institution; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

March 2002

Stanford GSB Working Paper No. 1730

Abstract:

Standard agency theory suggests that rational voters will vote to re-elect politicians who deliver favorable outcomes. A second implication is that rational voters will not support a politician because of good outcomes unrelated to the politician's actions. Specifically, rational voters should try to filter signal from noise, both in order to avoid electing incompetent, but lucky politicians, and to maximize the link between their votes and optimal incentives. This paper provides insight into the information processing capacities of voters, by measuring the extent to which they irrationally reward state governors for economic fluctuations that are plausibly unrelated to gubernatorial actions. Simple tests of relative performance evaluation reveal that voters evaluate their state's economic performance relative to the national economy. However, these tests only provide evidence of rule-of-thumb performance filtering. More sophisticated tests reveal that voters in oil-producing states tend to re-elect incumbent governors during oil price rises, and vote them out of office when the oil price drops. Similarly, voters in pro-cyclical states are consistently fooled into re-electing incumbents during national booms, only to dump them during national recessions. Consistent with an emerging behavioral literature, this suggests that voters make systematic attribution errors and are best characterized as quasi-rational.